« August 27, 2006 - September 02, 2006 | Main | September 10, 2006 - September 16, 2006 »
Religious skeptics scour the headlines for evidence of the existence of a just God. Economic skeptics scour the headlines for evidence of the existence of economically rational human beings. When it comes to the real estate pages, we have difficulty finding them.
Today, my hometown paper, the Westport News, published some statistics on the local real estate market. In one column, it breaks down the number of sales by price range. And through the end of August, two homes in the $2.5 million-plus category have sold so far this year, down from four in the first eight months of 2005.
Yet if you go to Realtor.com and do a search for homes on the market in Westport at $2.5 million or more, the results say there are 97 such properties on the market.
If properties in this price category are selling at the rate of three per year, that means Westport currently has about 32 years of inventory on the market in this price niche. Does this sound rational? Given the demonstrated paucity of buyers willing to make purchases in this price range in this town, how can it make sense for so many people to seek to sell homes in this price range in this town? Needless to say, many of these homes are brand new spec. houses. Soft landing? Right.
Posted by dan at 03:57 PM
Very funny piece by Andrew Kramer in the New York Times on high-end golf clubs near Moscow:
MOSCOW, Sept. 7 — Out on the dewy grass of the Moscow Country Club on a recent morning, a cheery Russian couple, dressed to the nines in golf attire, hacked and sliced their way along the fairway of the second hole, a par 5 with a gentle swale and a sand trap guarding the hole. With loud yells of “Fore!” they sent divots flying into the air and balls slicing through the foliage of a birch grove. . . .The country club, in a birch and pine forest that is a 20-minute drive outside the city, was built by the Soviet Foreign Ministry as a lure for foreign businessmen — an idea hatched in 1974 at the dawn of the era of détente by the American oil tycoon Armand Hammer, who was an informal adviser to the Soviet leadership on business matters.
This being Russia, some things take a little getting used to. For one thing, many of the members, who pay a $32,000 entry fee and $3,773 annually, are accompanied on the course by their bodyguards.
“I go to the espresso machine, and I notice that everybody around me is packing heat,” said Bill Pigman, an American businessman, about one recent detour to the coffee counter in the opulent clubhouse, where a cappuccino costs $7.
“And we get out behind them on the fourth hole, and these bodyguards come up to us and say, ‘Wow, slow down. Give us some room here,’ ” Mr. Pigman said. He slowed down. “I’m interested in the collision of the new Russian culture and the game.”
Clubhouse talk, he said, still turns to the time a prostitute was discovered standing by the 15th tee, looking to drum up business with the wealthy members. “Where do you find that in Peoria?” he asked. The woman was eventually evicted from the course.
In the parking lot, where a silver Bentley and a red Ferrari could be seen on a recent day, a guard strolled around — smoking a cigarette — examining the undercarriages of those cars for bombs.
Posted by dan at 10:45 AM
Would you believe hacks at right-wing think tanks published pro Wal-Mart puffery without disclosing that their institutions were backed in part by the Walton Family Foundation? Well, of course you would. Michael Barbaro and Stephanie Strom have the goods in the New York Times.
A note: the sums in play are small in the scheme of the overall funding at these institutions. So I don't think there's a compelling case to be made that we should ignore articles by the likes of Tim Kane at Heritage or Karl Zinsmeister, ex-AEI simply because the institutions at which they toil receive funding from corporations. The case that we should ignore articles by the likes of Tim Kane at Heritage or Karl Zinsmeister, ex-AEI, simply because they're partisan hacks posing as public intellectuals, and because they produce a lot of junk is far more powerful.
Posted by dan at 10:38 AM
Are News Corp.'s shareholders paying $50,000 a month to rent an apartment for Rupert Murdoch. Apparently so. Julia Angwin reports in the Wall Street Journal:
New York media conglomerate News Corp. is paying $50,000 a month to rent an apartment for Chairman Rupert Murdoch, the company disclosed in a regulatory filing, even as Mr. Murdoch's combined salary and bonus reached a high of $25.7 million in the year ended June 30.The apartment is a penthouse in the Trump Park Avenue building in New York, a person familiar with the situation said. Mr. Murdoch, whose family owns a roughly 30% voting stake in News Corp., recently sold his apartment in Manhattan's Soho neighborhood and is renovating a penthouse on the Upper East Side that he bought from Laurance S. Rockefeller for $44 million two years ago.
Trump Park Avenue penthouses range from about 4,000 to 7,000 square feet, have oak floors and most have roof terraces, according to the building's Web site. News Corp. has leased the apartment since May, the filing said. In addition to the $50,000-a-month lease cost, News Corp. pays $500 in utilities. . . .
News Corp. said the New York apartment was akin to a second residence for Mr. Murdoch.
"While Mr. Murdoch's New York home is being renovated, his family is staying at their home in Los Angeles," a company spokesman said. "Given Mr. Murdoch's business requirements in New York, the company decided that for its convenience it would pay for an apartment in New York for Mr. Murdoch for the duration of the renovation." He added that Mr. Murdoch will pay taxes on the benefit.
The juicy bits are on page 29 of this SEC filing.
Posted by dan at 10:33 AM
The Wall Street Journal has its new economic forecast out, and now that housing prices have been essentially stagnant for a year, the consenesus among economists is that housing prices will be essentially stagnant next year.
Economists believe cooling in the housing market to extend into next year and many forecasters in the latest WSJ.com survey predict no change -- or an outright decline -- in home prices next year.Twenty-five of the 48 economists who answered the survey's question about housing predicted no change or a decline in a closely watched gauge of nationwide home prices during 2007. The average prediction for next year was for an increase of 0.43%, lifted by five economists who forecast gains of 5% or more.
The average forecast would leave home-price appreciation well below the expected rate of inflation. Just 27% of the respondents forecast an increase in home prices of greater than 2.7%, which was the economists' average expectation of the year-to-year increase in the Labor Department's consumer-price index for May 2007.
Posted by dan at 10:30 AM
From the Wall Street Journal's Washington wire:
Economists surveyed by WSJ.com put odds of recession within a year at 1 in 4, up from 1 in 5 a year ago. But they divide on how November results would affect long-term deficits; 14 say Republican rule would reduce them most, 14 say Democrats, while 10 say split control. “Democrats = tax increases,” says Allen Sinai of Decision Economics, but S&P’s David Wyss argues, “Republicans have turned into the spenders.”
I'd like to know who these 14 economists are who believe that Republican control of Congress will reduce long-term deficits the most, and precisely where they've been for the past six years, as the national debt has exploded.
Posted by dan at 10:27 AM
This whole entente with France thing may be a bit overhyped. Carola Hoyos reports in the Financial Times:
Total has vowed to continue efforts to develop Iran's vast oil and gas reserves, saying yesterday it would not have its hands tied by US attempts to isolate Iran by preventing international companies from investing there.Thierry Desmarest, chief executive, said in an interview yesterday that the French energy group would respect decisions made by the French government, the European Union and the United Nations regarding Iran but that US regulations were the problem of US companies.
"We will always fully respect all the decisions made at the level of the French government, the European Union and the United Nations," he said.
Total, the world's fourth largest listed energy group, intends to help develop Iran's huge natural gas fields and is continuing discussions with Inpex, Japan's state oil company, to take a stake in a $2bn (€1.6bn, £1bn) project to tap Iran's Azadegan oil field.
This strategy, also being employed by several of Total's rivals, challenges the foreign policies of the US, which has sought sanctions against Iran if it does not shut down its nuclear enrichment programme.
Posted by dan at 09:52 AM
Nobel laureate Joseph Stiglitz has a smart piece about globalization in today's Financial Times:
There were once hopes thatglobalisation would benefit all, both in advanced industrial countries and the developing world. Today, the downside of globalisation is increasingly apparent. Not only do good things go more easily across borders, so do bad - including terrorism. We see an unfair global trade regime that impedes development and an unstable global financial system in which poor countries repeatedly find themselves with unmanageable debt burdens. Money should flow from the rich to the poor countries, but increasingly, it goes in the opposite direction.What is remarkable about globalisation is the disparity between the promise and the reality. Globalisation seems to have unified so much of the world against it, perhaps because there appear to be so many losers and so few winners. The Panglossian view of globalisation, that it would automatically benefit all, has impeded the ability to address its failures. Young French workers ask how globalisation is going to make them better off - if, as they are told, they must accept the resulting lower wages and weakened job protection. Growing inequality in the advanced industrial countries was a long predicted but seldom advertised consequence: full economic integration implies the equalisation of unskilled wages throughout the world. Although this has not (yet) happened, the downward pressure on those at the bottom is evident. Unfettered globalisation actually has the potential to make many people in advanced industrial countries worse off, even if economic growth increases.
While economic theory predicted there would be losers from globalisation, it also said that the winners could compensate the losers. Well-managed globalisation can make everyone, or at least most, better off. This has not happened. Instead, conservatives have argued that globalisation requires countries to become more competitive by cutting taxes and rolling back the welfare state. In the US, tax policies have become less progressive; the bulk of recent tax cuts went to the winners, those who had already benefited both from globalisation and changes in technology. Increasingly, we are becoming rich countries with poor people.
Posted by dan at 09:50 AM
David Brooks's column yesterday in the New York Times about income inequality was, in typical Brooks fashion, long on assertion and short on data. It's as if he was begging for a beating. Now he's getting it, from the likes of Dean Baker. And today, fellow columnist Paul Krugman piles on ($ required). Without mentioning the Bobo-man by name (is there some Senate-like rule at the Times, where you can't refer to a fellow columnist as an idiot?), he neatly fillets Brooks.
Posted by dan at 08:26 AM
My latest in Slate, on the executive changes at Ford.
Posted by dan at 09:00 AM
Martin Wolf of the Financial Times is the anti-Thomas Friedman. He's clean-shaven, and writes about globalization in a nuanced, un-naive and breathful (are these last two words the opposites of naive and breathless?). Today's column is a good example.
Posted by dan at 10:35 AM
Spectrem Group reports that the rich people it surveys are pessimistic.
CHICAGO, Sept. 6 /PRNewswire/ -- Spectrem Group announced today that its Spectrem Millionaire Investor Index (SMII)(TM) fell 7 points in August to 1 -- its second-lowest level ever -- on continued worries about energy costs and the Iraq War.
The index, which has been in a general downtrend since its near-term peak of 23 in February, remained in neutral territory despite the August decline. At its current level of 1, the millionaire index stands just 1 point from its all-time low of zero, which it hit in October 2005.
Similarly, the Spectrem Affluent Investor Index (SAII)(TM), which measures the investment outlook of households with $500,000 or more in investable assets, also fell in August to its second-lowest level. A 4-point decline left the index at -5, a neutral reading and a single point from its historic low of -6, which also dates to October 2005.
And the Financial Times reports that a survey by Vistage reveals low confidence among some CEOs:
The confidence levels of chief executives of US small and medium-sized enterprises have slumped to a three-year low - a sign that the backbone of the US economy is feeling the strain of the feared economic slowdown.A study of nearly 2,000 CEOs to be released today shows that over the past quarter small business leaders have become more worried about the outlook for their companies' profits, revenues and investments.
The quarterly US confidence index compiled by Vistage, an organisation of chief executives of more than 13,000 SMEs around the world, hit the lowest point since it was first published in 2003, according to the report. The shift in sentiment mirrors the mood of chief executives of large US companies but could have a more significant impact on the real economy as SMEs account for about half of domestic output and create three out of four new jobs.
"Chief executives definitely feel that the economy is much worse now than it has been and they expect it to continue to worsen over the next 12 months," said Dan Barnett, Vistage chief operating officer.
Posted by dan at 10:24 AM
From the Wall Street Journal:
NEW YORK -- Higher prices for oranges and fuel are prompting Coca-Cola Co. to increase the price of its premium chilled orange juice in North America for the third time in the past year.Coca-Cola North America's Minute Maid unit will increase its wholesale list prices for Simply Orange orange juice and Minute Maid Premium Orange Juice by 3% to 6%, effective Oct. 2. The company also plans to scale back promotional pricing into 2007.
The Atlanta beverage company attributed the latest series of price increases to "unprecedented" cost increases in orange fruit solids and concentrate, fuel and energy, and general inflation.
Prior to 2006, the company hadn't increased its prices in about five years. Instead, rising costs were offset by cutting expenses and productivity improvements. However, the cost of raw materials has been rising at record rates.
Posted by dan at 09:56 AM
With prices for copper and other metals high, scavengers are finding new targets. Sara Schaefer Munox and Paul Glader report in the Wall Street Journal:
While Joe Fick and his wife Rachel Vreeman were sleeping in their rental house in Indianapolis one night in July, thieves sneaked up and made off with an estimated $100 of stolen goods. But the target wasn't jewelry or electronics. It was the copper components of the house's central air conditioner."They unscrewed the top and pulled out the guts and left the shell there," says Mr. Fick, a campus minister.
The high price of copper is hitting home -- literally. The metal's skyrocketing scrap value is inspiring criminals to hit houses, making off with copper coils in air-conditioning units, copper wires, even the copper pipes used for plumbing, leaving some perplexed residents without running water.
In the past several months, police departments across the country have reported a surge in the number of copper-related thefts at homes, businesses and elsewhere. Police have reported everything from copper vases swiped from gravesites to more serious thefts, such as the copper wire stolen recently from a power substation in Oklahoma City that utility officials say caused a six-hour power outage for 4,000 customers
Sometimes thieves steal less than $100 worth of the metal but cause many times more in damages. Police in Detroit, for example, are reporting thousands of dollars in repair costs for street lights that have been stripped of copper components.
Posted by dan at 09:54 AM
Who says shareholder activism doesn't pay. Proxy adviser Institutional Shareholder Services has put itself up for sale, and Dennis Berman and Joann Lublin report in the Wall Street Journal that it could command a high price.
Services has put itself on the auction block, say people familiar with the matter, and could fetch as much as $500 million, these people estimate.ISS, the nation's biggest proxy-advisory service, exerts tremendous clout in guiding institutional investors about how to vote on proxy fights, director re-elections and resolutions put before shareholders. Its research and advice can influence the outcome of big proxy battles, such as Hewlett-Packard Co.'s merger with Compaq Computer Corp. in 2002 and the recent proxy fight at H.J. Heinz Co.
The firm, based in Rockville, Md., was founded in 1985 to bring a critical lens to the mutual funds and asset advisers who had traditionally rubber-stamped management proposals. Since then, it has become a standard bearer for a new wave of shareholder activism, which is putting new performance pressure on corporate boards and managers.
Posted by dan at 09:51 AM
Some years ago, I wrote about how Congress may have kicked off the options boom by limiting the deduction of CEO salaries to $1 million. Now, Charles Forelle and Kara Scannell of the Wall Street Journal report that one high-ranking Senator wants Congress to get back into the business of regulation executive compensation:
Congress is looking at reducing or even eliminating a lucrative tax deduction that helped feed the explosion in stock options, according to a leading senator.Under a 1993 law, companies were forced to pay taxes on all compensation for senior executives higher than $1 million apiece annually -- unless the compensation was performance-based, that is, linked in some way to the company's performance. In practice, that exception encouraged companies to tilt compensation toward stock options, since those are tied to a company's stock price and therefore are typically considered performance-based.
But amid a scandal over manipulated options grants, Sen. Charles Grassley, an Iowa Republican who is chairman of the Senate Finance Committee, said the 1993 break has "failed and to some extent it might be creating this options industry."
In an interview, Sen. Grassley, whose committee opens hearings on options and executive compensation today , said doing away with the deduction for performance-based pay entirely is a "possibility," as is "at least tightening it up." Though he said he couldn't give a precise head count of support in Congress, he said "a lot of members are interested" in possibly scaling back executive-pay deductions.
Posted by dan at 09:48 AM
Quote of the day, from ancient media mogul Sumner Redstone, courtesty of Richard Siklos of the New York Times:
"I work out every day," he said. "Do you know any studs who work out 70 minutes a day?"
Posted by dan at 09:29 AM
Three researchers at the University of Michigan have taken a first cut at trying to estimate the cost of the options backdating scandal. The conclusion: it's large. Eric Dash reports in the New York Times:
A new study estimates that the stock options backdating scandal may cost shareholders hundreds of millions of dollars. The study was released on the eve of two Senate committee hearings that plan to examine the scope of the widening investigation into improper options practices.Three researchers at the University of Michigan estimated that backdating stock options between 2000 and 2004 helped sweeten the average executive’s pay by more than 1.25 percent, or about $600,000. But the fallout from the recent options investigations has caused those executives’ companies to fall in market value by an average of 8 percent, or $500 million each.
“For about $600,000 a year to the executives, shareholders are being put at risk to the tune of $500 million,” the study concludes.
The working paper, expected be made public later this week and to be published in The Michigan Law Review next year, appears to be the first to put dollar figures on the costs and benefits of backdating. It analyzed thousands of stock option grants at 48 companies that announced they were under investigation as of the end of June, and measured the maximum gains for those executives if their options were backdated over a 90-day period as well as the drop in value at those 48 companies in the 10 days before and after news of a backdating inquiry was released.
“From a shareholder’s perspective, it’s not just the extra compensation the executives got, it’s not just the extra taxes they have to pay,” said H. Nejat Seyhun, a University of Michigan finance professor who is one of the study’s co-authors. “There may be additional payouts for class-action lawsuits as well as worrying about the quality of the top management.”
As an economic analysis, the study assumed that investors’ calculations of those risks, not irrational panic, was responsible for the substantial stock market declines. The researchers also assumed that the stock prices of those 48 companies would not recover.
Posted by dan at 09:25 AM
A federal judge says no to huge bonuses for executives at bankrupt Dana Corp. Floyd Norris reports in the New York Times:
A plan to pay millions of dollars to the top officials of the Dana Corporation, the auto parts company, violates the new bankruptcy law and cannot go forward, a judge ruled yesterday.Judge Burton R. Lifland of the Federal Bankruptcy Court in Manhattan said that the proposal was an illegal plan to retain Dana’s chief executive and other top executives. The plan had drawn objections from Dana’s creditors, shareholders and unions, as well as the United States trustee, a part of the Justice Department.
Until now, no bankruptcy judge had struck down a proposed pay plan for executives on the ground that it violated the new provision, which bars retention payments for a corporate insider unless the executive has another job offer.
Norris also now has a blog, but you've got to pay for it.
Posted by dan at 09:21 AM
In Fortune's "Business Life" issue, KB Home CEO Bruce Karatz poses on a motorcycle and talks about how he likes to have fun. Given that (a) KB Home is under investigation over the timing of the massive option grants it gave Karatz; and (b) the company's stock is off about 44 percent year to date, was this a wise move? Vroom Vroom!
Posted by dan at 09:22 PM
In Sunday's New York Times, media columnist Richard Siklos speculated about the future of Time, Inc. Maybe I'll write about that in Slate next week. Oops, already did.
Is the financial performance of its publishing unit, Time Inc., becoming a worrisome drag, and is it time to spin off its venerable fleet of magazines? . . .But just as cable is gaining steam and AOL is on a new path, Time Inc. — the smallest of the company’s five major operating businesses — remains challenged. Time Inc.’s operating income dropped 11 percent, to $388 million, in the first half of the year, compared with the same period of 2005. Revenue was roughly flat, at $2.45 billion.
Mr. Parsons told me recently that an advertising slowdown at magazines favored by men and the rapid migration of ads from print to the Internet explained the drop-off in publishing profits.
Time Inc. has already undergone rounds of cost-lopping under its chief, Anne Moore, and moving Time magazine’s publication date to Friday from Monday is one small sign of how the division is trying to reinvigorate itself in the Internet era. Even so, Mr. Bewkes is seeking bigger structural changes at the division, according to several people close to the company. Mr. Bewkes has zeroed in on the fact that Time Inc. publishes some 145 magazines worldwide, yet its 10 biggest generate a vast majority of its revenue. Expect them to get the bulk of attention and resources while some smaller titles drop their print editions (as Teen People recently did) and others are sold.
It is unlikely, however that a whole-hog sale of Time Inc., or any other division, will happen on Mr. Parsons’ watch.
Posted by dan at 09:16 PM
Excellent article by Edward McQuarrie in Barron's ($ required) on how many of the purported Bush tax cuts are simply mirages--especially for upper-middle-income earners.
Posted by dan at 09:14 PM
Business Week has an excellent story on the impending mortgage mess: nicely packaged, smoothly written, with original reporting. If Time and Newsweek are searching for ways to be relevant to their readers, they should produce these types of articles.
Posted by dan at 09:11 PM
Rep. Chris Shays continues to insult his constituents' intelligence. Sarah Lueck reports in the Wall Street Journal:
WASHINGTON -- As Congress returns to work after Labor Day, Republicans face a burning question: whether to try again to pass a minimum-wage increase, or risk facing voters in November without having done so.Some Republican lawmakers, particularly those facing tough re-election fights, want another chance to back an increase from the current $5.15 an hour, a move that would deprive Democrats of a major campaign talking point. "After 10 years, good grief, it's not like we're increasing it in a way that would cause unemployment," says Rep. Chris Shays, a Connecticut Republican locked in a close race. "I think it should be passed under our watch."
But other Republicans hate the idea and are unlikely to support such a move or would do so only with big sweeteners for their business base. The House passed a minimum-wage increase in July, but the measure failed in the Senate because it was paired with a cut in the estate tax that Democrats opposed. Many legislators argue that vote should be enough, at least politically, to show voters they tried. . .
Republicans, for their part, say Democrats blocked a legitimate compromise in order to keep the issue alive for the elections. "I frankly view it as Democrats not wanting Republicans to increase the minimum wage," Mr. Shays says, adding that his district "knows I voted for the minimum wage and voted for a rational reduction in the estate tax."
Um, what precisely was rational about (a) voting to pile on more debt so that heirs and heiresses can pay lower taxes; and (b) attaching such a measure to a piece of legislation that aimed to raise wages for low-income workers. If Shays is so hot for a minimum wage increase, why doesn't he simply round up a bunch of like-minded moderate Republicans, get together with the entire Democratic caucus, and push for a vote on a piece of legislation that would raise the minimum wage--no strings attached?
Posted by dan at 09:05 PM
David Lereah, the generally bullish chief economist at the National Association of Realtors, is now a short-term bear. James Hagerty reports in the Wall Street Journal:
The chief economist of the National Association of Realtors predicts that U.S. home prices will generally decline during the next few months.The unusually bleak assessment from David Lereah, the trade group's top economist, came as the Realtors reported that their index of pending home sales dropped 7% in July. The decline shows that home shoppers continue to take their time, hoping prices will fall amid a glut of houses on the market in many parts of the country.
"I'm hoping for prices to drop," Mr. Lereah said in an interview. The Realtors normally stress the tendency of home prices to rise over the long term. But Mr. Lereah said lower prices are needed in some parts of the U.S. to lure buyers back into the market. During the past year, sales have plunged in California, southern Florida and the Washington, D.C., area, all places where prices more than doubled in the first half of this decade.
Sales have stalled partly because "the sellers are not bringing prices down fast enough," Mr. Lereah said. "They've been very stubborn." A drop of 5% to 10% in California and southern Florida "probably would be enough to bring sales back," he said.
But why does it necessarily follow that a small price reduction will boost sales volume? Clearly, prospective home-buyers today think many homes are too expensive. But a reduction in price might only encourage them to bargain more tenaciously for even lower prices, or to hold out for further cuts.
Posted by dan at 09:01 PM
This Atlanta-based outfit, Pinnacle Development Partners, which buys foreclosed homes, had a full-page ad in Newsweek last week that says: "25% return in 60 days with a minimum $5K investment." Does that sound right? If you knew how to generate returns like that within two months would you be advertising to attract small investors in a national magazine?
Posted by dan at 08:58 PM
The crammed-down shall later cram down. Danny Hakim reports in the New York Times:
For two and a half years, Michael Tucker was mayor of this small city by day and an autoworker by night.Then in May, he became one of the nearly 50,000 workers at General Motors or its former Delphi parts division to take buyouts, lured by the $33,000-a-year pension his company offered. That pension, and a smaller one he expects to collect from the state after his years as mayor, makes him a little unusual in a nation where more and more workers are not covered by such plans.
But now, as mayor of Lockport, Mr. Tucker, 49, is seeing the budget of this city north of Buffalo consumed by the kind of pension and retiree health care costs that helped push Delphi into bankruptcy. So he is preparing to do what his former employers, G.M. and Delphi, have already begun to do: ask the city’s five unions for concessions, including limiting wage increases and cutting benefits, when labor contracts expire next year. . . .
Posted by dan at 08:52 PM
They must be spiking the water cooler over at AEI. In response to last week's Census Bureau report, which showed that median wages for people under the age of 65 (i.e. workers) fell last year, and that the percentage of workers without health insurance rose (again), Kevin Hassett of AEI told the Wall Street Journal:
"Times are good for workers. They've got high consumption, high income, really low unemployment, a fairly secure work environment -- it's a great market to be a worker."
Posted by dan at 08:47 PM